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US, world headed for 25 year depression: Jim Rickards

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Get rid of your mortgage, loans, because interest rates set to rise

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A steep drop in house prices in the United States has revived fears of a “double dip” in the housing market. House prices in the US dropped 1.3 per cent from the month of September to October. The chairman of the Standard and Poor’s committee that produced the home price indices report, David Blitzer, says there is “no good news” in it.”

It is encouraging that so many people on the contrarian wing actually get it – that homes are not investments, they are homes! Homes in Canada are outrageously priced and are in a massive bubble that is looking for a pin.

Economies go through cycles over long periods of time, with mini-cycles inside the bigger cycles. Historically, housing prices grow slowly for about 15 years, then RE prices soar for about 2-3 years. Then they fall again. This happened in the 80′s when people lost money on condos in Alberta in the early 90′s when they found out RE prices ALSO fall (a lot) sometimes.

Beginning in 2007 the Liberals and Conservatives allowed the banks to give out zero-down, 40 year amortization mortgages, which enabled anyone to buy a house. Expanding credit like that is not an organic event that stimulates the economy and housing market. It’s a concocted idea that unnaturally over-stimulated the housing market in 2007. This lead to the housing bubble we now have. Yes, it is a housing bubble, those who say it isn’t are merely in denial. Regarding prices: they can continue to rise by 5 to 10 percent per year for the next 10 years, but ONLY if they keep interest rates low for the next 10 years. This can’t happen, because they have to use interest rate adjustments to avoid hyperinflation.

Had this bubble formed naturally on its own, it’s possible there could be a minor correction and then a continuation upwards. It didn’t occur naturally, it was caused by keeping interest rates at near zero for a long time. It was unintentionally and inorganically created.

If you are in denial about a housing bubble, you need to ask yourself one question: Will the Canadian government keep interest rates low for ten years? That’s what it will take for house prices to continue to climb. Even if they did, there’s still a ceiling on buyers that’s dictated by income levels and population growth. If allowed to continue, eventually speculators will be selling unoccupied homes to other speculators and housing becomes commodified.

Tumbling house prices spark US double dip fears By North America Correspondent Jane Cowan

A steep drop in house prices in the United States has revived fears of a “double dip” in the housing market.

House prices in the US dropped 1.3 per cent from the month of September to October.

The chairman of the Standard and Poor’s committee that produced the home price indices report, David Blitzer, says there is “no good news” in it.

And he predicts the slump could herald the arrival of a feared “double dip” in the housing market.

Prices in six cities, including Atlanta, Miami and Seattle, sank to their lowest levels since the housing bust first began.

A recovery in home prices is considered critical to getting the US economy back on track but many analysts predict prices will keep falling into the new year. Sourced below

If CMHC in Canada or Fannie Mae / Freddie Mac in the U.S. were not guaranteeing mortgages with taxpayers money there would be a lot more sanity in the housing market. Banks will not touch a mortgage with less than 20% down because of the default risk – unless the taxpayer is on the hook. With all the mortgages guaranteed with taxpayers money, it’s no wonder prices went into the stratosphere.

Equally to blame were the years of artificially low interest rates that made borrowing far too easy and spiked housing prices into a speculative bubble. Low interest rates destroyed people’s savings and forced savers to invest in investment vehicles that they did not understand whether it was the stock market or the new found home equity myth.

It is comical to see people dismiss the notion of a housing bubble in Canada — a country with a media-touted “sound banking system.” Indeed, there have been many in the media calling non home owners “basement dwellers’ as well as home owners bragging about their phony wealth due to home equity. It will be these same arrogant people that will be crying for the government to ‘do something’ to protect their ‘investment’ once home prices fall dramatically.

The “collapse” is a market correction based on the inherent weakness of the deadbeat US economy which has over 20% real unemployment and barely any manufacturing capacity left. The lost wars are now costing $11 billion a day of wasted productive capacity and based on worthless un-backed monopoly value dollar. The real meltdown of US economy is yet to begin as even high-tech manufacturing and professional jobs move to Asia. Greed only lasts for a short-time and then the house of cards falls.

The inflated and unrealistic housing prices of the GREEDY 90′s and 2000′s were abnormal and not indicative of the real malaise in the North American economy, and this includes the widening income gaps, lack of real jobs and concentration of wealth in the hands of speculative greedy “investors”. Bernie Maddoff was a prime example of the PONZI casino economy. The downward spiral in housing values is a “market correction” and worse is yet to come. Canada’s big cities are infected with the same house price inflation disease and will suffer the same fate. A ramshackle house in Vancouver or Toronto is hardly worth $700,000 average when the median wage is barely $15/hour in Canada. There are over million unemployed Canadians and over 70% of the population makes $10 average minimum wage. Go figure.

References:
1. Tumbling house prices spark US double dip fears

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